Crude palm oil up on high oil prices

17 October 2007 07:20  [Source: ICIS news]

By Jeremiah Chan

SINGAPORE (ICIS news)--Benchmark third month crude palm oil (CPO) futures traded on the Malaysian exchange surged on the back of high crude oil prices this week, traders and buyers said on Wednesday.

January futures were traded as high as ringgit (M$) 2,760/tonne ($817/tonne) on Wednesday morning, up around M$160/tonne from a week earlier on Bursa Malaysia.

The recent bullishness in crude oil prices, which touched an all-time high of above $88/bbl early this week, comes on the back of higher demand for heating oil as winter approaches in the northern hemisphere, as well as geopolitical tensions in northern Iraq.

“CPO prices traditionally track soybean oil futures, and [soybean oil] prices have been going up due to the strong crude oil prices over the past couple of days,” a vegetable oil trader said.

Soybean oil futures for December lifting on the Chicago Board of Trade rose by 17 points and were hovering at $40.23 cents/lb at the close of the trades on Tuesday.

Higher palm oil export numbers announced on Tuesday on the Malaysian Palm Oil Board website by cargo surveyor SGS (Malaysia) Berhad also lend support.

SGS estimated that 120,890 tonnes of CPO were exported during Oct 1-15, compared to 79,422 tonnes during the same period in September.

Palm oil buyers and traders also pointed to speculative trading from hedge funds, which contributed to the rising prices

“[Trading activity from] funds always provide the premium in any spike in commodity prices,” a vegetable oil broker said.

CPO is used as a feedstock for biodiesel and fatty acid production, and producers have been squeezed by higher prices in recent months.

“CPO prices are sky-rocketing, prices are almost at M$3,000/tonne already” said a palm-based biodiesel producer, adding that it was increasingly difficult to buy affordable material.

“We were caught off-guard by the sudden spike in prices, and we have to try to pass on the higher raw material costs to our customers,” a senior marketing official of a fatty acid major based in Malaysia said.

He added that 80% of the fatty acid manufacturing costs come from feedstock prices.

The higher offers, however, have not been accepted by fatty acid buyers as lacklustre demand kept a lid on increases.

With major CPO producer Indonesia closed for the Eid Al Fitr festivities this week, most buyers stood by the sidelines as they awaited a clearer price direction to emerge in the subsequent week.

($1 = M$3.38)

By: Jeremiah Chan
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